Mood, religious experience and the Ramadan effect

Abstract

Purpose The purpose of this paper is to focus on the influence of mood/emotions and religious experience on Islamic stock markets during the Ramadan month. Design/methodology/approach This study uses stock returns data of two countries – Saudi Arabia and Iran – from January 2008 to September 2014 and the ARMA-GARCH models to study impact of the Ramadan month on the return and volatility of the stock market in these two countries. Findings The results of this study show some differences in the impact of the Ramadan month on the return and volatility of the stock market in these two countries. While the Ramadan month has a significant positive influence on the mean returns and the volatility of the Saudi market, its influence on the Iranian market is found to be insignificant. Further analysis on the last ten days of the Ramadan month provides a similar result for the Saudi market. However, for the Iranian market, volatility is significantly negatively affected during these last ten days. Originality/value Most prior studies have found significant changes in returns during the Ramadan month but a deeper understanding of this stock market anomaly is needed. The results point toward the influence of mood/emotions and religious experience in explaining the existence of the Ramadan anomaly.

The day of the week effects in stock markets of countries with predominantly Muslim populations

“…Balaban (1995) and Kamath and Liu (2010) in their studies find a significant positive Friday returns on the Istanbul stock exchange as a developing country. Ulussever et al (2011) conducted a research on Tadawul, as an important stock market among Islamic countries and the findings confirmed the DoW effect in the Saudi Arabia stock market. In their research, Derbali and Khadraoui (2011) determined significantly positive Fridays and negative Wednesdays according to their daily anomaly investigation for Casablanca stock exchange.…”

“…This study investigates the presence of the DoW effect by applying the descriptive statistical analysis and GARCH model for returns of main indices in 19 stock markets for the past decade. While some of the studies have researched the calendar anomalies by mean returns, more recent evidence have applied different types of GARCH models considering volatility (French and Roll, 1986; Choudhry, 2000; Ulussever et al , 2011; Zhang et al , 2016). Similarly, in their analysis of DoW effect and conditional volatility, Baker et al (2008) choose the GARCH (1,1) model to assess this calendar anomaly.…”

“…Whilst some of the studies have researched the seasonal anomalies by mean return, more recent evidence has applied different types of Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models considering volatility (French and Roll, 1986; Choudhry, 2000; Ulussever et al , 2011; Zhang et al , 2016). For instance, Choudhry (2000) finds a significant DoW effect in some of the markets being examined and additionally indicate a Monday effect on both stock returns and volatility.…”

Transmission of shocks between Chinese financial market and oil market

“…A great deal of literature is based on the rationality of investors (Fama, 1965) to explain market price dynamics. However, the occurrence of certain phenomena in the financial marketslike momentum, volatility asymmetry and financial crisessuggests the importance of considering the cognitive biases and investor's sentiment (De Long et al, 1990;Wasiuzzaman and Al-Musehel, 2018) for explaining price movements in financial markets.…”

Ramadan effect on sectoral herding

“…Many studies were conducted to test the effect of Ramadan on stocks returns (KHAN et al, 2017;LAI;WINDAWATI, 2017;SHAH et al, 2017;WASIUZZAMAN;AL-MUSEHEL, 2018) and on herding (GAVRIILIDIS et al, 2016;YOUSAF et al, 2018). These studies, however, were focused on studying the effect of Ramadan at market-level while in this study, additional analysis was carried out to test the effect of the month at sector-level.…”